The future value of a single cash flow is its value after it accumulates interest for a number of periods. The future value of a series of cash flows equals the sum of the future value of each individual cash flow. Various situations in your small business might prompt you to calculate the future value of a series of cash flows. For example, you might invest excess cash periodically to cover future expenses and need to know the investment’s future value for your budget. You can use the future value formula to determine how much a series of cash flows will be worth.

1. Plug the first of a series of cash flows into the formula C(1 + R)^Y. In the formula, C represents the cash flow, R represents the interest rate the cash flow will earn each period and Y represents the number of periods the cash flow will earn interest. For example, assume your small business will invest $1,000 in a savings account now and $500 one year from now. Assume you will earn 5 percent annual interest and want to know the account’s future value in four years. Because the first cash flow will earn interest for four years, its formula is $1,000(1 + 0.05)^4.

2. Plug the second cash flow and each subsequent cash flow in the series into the same formula. Each subsequent cash flow will have fewer periods to grow than the previous cash flow, which results in a different Y value for each formula. In this example, the second cash flow will earn interest for three years – from the beginning of next year until four years from now. Its formula is $500(1 + 0.05)^3.

3. Calculate each formula to determine the future value of each individual cash flow. In this example, add 1 to 0.05 to get 1.05. Raise 1.05 to the fourth power to get 1.216. Multiply 1.216 by $1,000 to get a future value of $1,216 for the first cash flow. The second cash flow’s future value is $579.

4. Add the future value of each individual cash flow to determine the future value of the series of cash flows. Concluding the example, add $1,216 to $579 to get a future value of $1,795. This means your two deposits into the savings account will grow to $1,795 in four years.